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UK-based marketplace lender Lendy, which allowed retail investors to lend to property developers, has entered administration amid an investigation by UK financial watchdog the Financial Conduct Authority (FCA), according to City A.M.
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Prior to administration, it was revealed Lendy had rising default levels; the startup currently has £160 million ($203 million) in outstanding loans, over £90 million ($114 million) of which are in default.
Lendy’s collapse means millions of pounds of retail investor money could be lost, as investments are not protected under the Financial Services Compensation Scheme, per The Times.
The marketplace lender was already placed on the FCA’s watch list in January, less than a year after it received full authorization from the regulator.
Here’s what it means: Lendy’s had a troubled past, and the FCA should act fast to further regulate the marketplace lending space.
- The FCA and Lendy have been in close contact since last year. In October 2018, Lendy reached out to the FCA after one of its biggest borrowers threatened to sue for £10 million ($13 million), claiming Lendy unfairly gave notice on its loans and didn’t provide the full funding agreed on in the contract. Then, in March, the FCA placed Lendy under special supervision and expressed concerns about the lender’s ability to meet parts of its minimum standard. Under supervision, Lendy had to provide the regulator with weekly updates on its cash flow and progress with loan recovery. At that time, 55% of its outstanding loans were nonperforming or only partially repaid.
- Lendy’s collapse has led the FCA to introduce new rules for the marketplace lending space. The board of the regulator will meet this week to scrutinize the risks of marketplace lenders and the FCA will publish new rules in the next two months. The FCA wants to give investors an "appropriateness test" before handing over cash, as well as cap the amount they can lend to 10% of their savings. The FCA first proposednew rules in July 2018, but hasn’t introduced any changes to the marketplace lending space yet. Given Lendy’s turbulent past and uncertain future, the regulator would be wise to make changes to the industry to avoid another lender entering administration, further risking the capital of retail investors.
The bigger picture: Regulators are watching the fintech space across the globe, and action is required in more than one segment.
Marketplace lenders have faced issues with regulators globally, and fintechs in other segments have also seen their share of regulatory attention. In China, regulators have cracked down on the industry, forcing marketplace lenders to apply for a license, which led many firms to shutter their doors. Additionally, US-based Lending Club was charged by the Federal Trade Commission for falsely promising consumers they’d receive a loan with "no hidden fees."
These regulatory actions suggest there’s still more work to be done by the authorities in the fairly nascent marketplace lending space to give companies guidelines on how to operate appropriately. Moreover, earlier this year, neobanks N26 and Revolut were both being investigated by their respective regulators; hence, as some players mature in various fintech segments, the struggle of remaining compliant continues to be an issue.
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